Vanderbilt reins in lavish spending by chancellor

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NASHVILLE, Tenn. -- At Vanderbilt University, the board is trying to rein in star chancellor E. Gordon Gee, without running him off.

Since arriving here in 2000, the 62-year-old Mr. Gee has dramatically boosted the 133-year-old school's academic standing and overseen fund raising of more than $1 billion. Mr. Gee's $1.4 million annual compensation is among the highest for U.S. university leaders.

But supervision of Mr. Gee by the university's 44-member Board of Trust has "probably been a little loosey-goosey," says trustee Edward Malloy, a former president of the University of Notre Dame. Vanderbilt paid more than $6 million, never approved by the full board, to renovate and enlarge Braeburn, the Greek-revival university-owned mansion where Mr. Gee and his wife, Constance, live. The university pays for the Gees' frequent parties and personal chef there. The annual tab exceeds $700,000. Some trustees' concern was aroused when they learned that Mrs. Gee was using marijuana at the mansion. The chancellor told some trustees she was using it for an inner-ear ailment.

Now change is afoot. Trustees recently created a subcommittee to monitor Mr. Gee's spending. For the first time, the full board will get reports about his expenditures and pay package. A second new board committee is scrutinizing potential conflicts of interest and likely will look at the university's longtime contract with a parking company in which a trustee holds a big stake.

"We should not be issuing blank checks to university leaders," says Judson Randolph, a retired Vanderbilt trustee who still attends board meetings.

Yet no one wants Mr. Gee to leave. Despite the board's actions, chairman Martha Ingram says: "I have never had qualms about whether Gordon should stay on as chancellor."

The delicate dance by Vanderbilt trustees reflects a new era of campus governance and the changing role of college heads. Historically, these campus leaders earned modest salaries and enjoyed long tenures. Now, like Mr. Gee, they make more money and move more often. Their higher compensation invites scrutiny from trustees, faculty and students.

Vanderbilt's $2.2 billion annual budget is bigger than the revenues of all but the largest 800 U.S. public companies. But management oversight on campus often hasn't kept pace with changes in the business world. At Vanderbilt, the full Board of Trust didn't approve the university's annual budget, most big-ticket spending projects or debt financing between 2000 and 2005.

The scrutiny at Vanderbilt comes as the national outcry over executive pay has reached into academia. Recent disclosures about the pay and perquisites of campus leaders have led to resignations and an indictment.

American University last fall forced out President Benjamin Ladner after auditors questioned more than $500,000 in expenditures by him and his wife. The Washington, D.C., university paid for the couple's birthday parties and European vacations in first-class hotels, according to the audit. Investigators found the Ladners once stopped in Rome on a business trip to Dubai so she could have her hair cut by a favorite stylist. Mr. Ladner says the university didn't pay for any European vacations and the Rome stop "had nothing to do with" his wife getting a haircut.

In California, a state audit in May uncovered $334 million in largely unreported pay and perks for University of California staffers during the year ended June 30, 2005. The spending included a $30,000 dog run built for Denice Denton, chancellor of the university's Santa Cruz campus. She committed suicide in June following extensive media coverage and criticism by lawmakers.

In August, a Houston grand jury indicted former Texas Southern University President Priscilla Slade on two charges of criminally misusing university money for her private benefit. The indictment alleges Ms. Slade improperly spent $1.9 million during her nearly seven-year tenure, including more than $260,000 to furnish and landscape her home. Ms. Slade, whom university regents fired in April, has denied wrongdoing and sued them for allegedly breaking her contract. "She believed every expenditure she participated in was for the benefit of TSU and was or would be approved by the board," says Mike DeGeurin, Ms. Slade's lawyer.

In the wake of such disclosures, Congress is considering more scrutiny of management compensation at nonprofits. Sen. Charles Grassley, a Republican from Iowa, intends to introduce a bill next year to strengthen a federal prohibition on "excessive" compensation for leaders of universities and other charitable groups. Good governance "can make the difference between universities where presidents live high on the hog and where students come first," says Mr. Grassley, chairman of the Senate Finance Committee.

Mr. Gee's 25-year career as a university leader follows a recurring pattern: disrupt the status quo, lift the university's image, raise a lot of money, and leave for another job. He has run five universities -- more than any other American, he says. At each stop, Mr. Gee has been well-paid, and well-housed.

A Mormon teetotaler trained as a lawyer and educator, Mr. Gee is known for wearing bowties and horn-rimmed glasses. He first became a university president at West Virginia University in 1981, when he was 37.

In 1985, Mr. Gee left to assume the presidency of the University of Colorado, where he charmed students and lawmakers, who boosted state support by 37 percent during his tenure. The university also built him a $780,969 house. After he resigned in 1990 to take the helm at Ohio State University, Colorado regents found Mr. Gee had awarded deferred-compensation bonuses to top aides without board authorization. Mr. Gee says he reviewed the bonuses with the board's chairman, who has since died.

At Ohio State, Mr. Gee confronted state budget cuts. He restricted enrollment, merged departments, cut jobs through attrition, and initiated a $1 billion fund-raising campaign. During his seven-year tenure, the university twice paid to renovate its president's home and added a small conservatory to it. The total cost was between $500,000 and $750,000, according to Mr. Gee. When he announced plans to leave for the Ivy League's Brown University, Ohio State students donned bowties and begged him to stay.

Brown spent $3 million renovating the president's home for Mr. Gee, says Donald Reaves, Brown's former finance chief. The total included a $400,000 conservatory that was built in England, then broken down, shipped, reassembled and attached to the president's home on Brown's Providence, R.I., campus.

Mr. Gee believes a home with generous entertaining space is an essential fund-raising tool for a university leader. At Brown, he says, "I stayed out of the budget side" of the renovation.

In late 1999, less than two years after arriving at Brown, Mr. Gee took a call from John Hall, a retired chief executive of Ashland Inc. and longtime Vanderbilt trustee. The two men had been friends since the early 1980s, when Mr. Gee sought a corporate contribution from Mr. Hall for West Virginia's engineering school. Now, Mr. Hall wanted Mr. Gee to consider moving to Vanderbilt.

Mr. Gee said he initially resisted, but eventually succumbed after an intense courtship by Vanderbilt trustees. He said he never felt like he fully belonged at Brown, where he had some run-ins with the faculty. The day Vanderbilt announced his selection in February 2000, the Gees toured Braeburn, situated on a hilltop in a tony Nashville neighborhood. "They said, 'It would be nice to fix it up as nice as the house at Brown,'" Mr. Hall recalls. He says the university promised to renovate the home and install a conservatory, guest quarters and commercial kitchen. "He got what he wanted," Mr. Hall says.

The university's offer letter, reviewed by The Wall Street Journal, didn't mention the remodeling project. It promised Mr. Gee a $504,000 annual salary, annual bonus and two supplemental-retirement plans. Only a few of the nine members of the board's search committee knew the details of the offer letter at the time, according to people familiar with the matter.

After arriving at Vanderbilt, Mr. Gee set out to recruit top-flight faculty, break down barriers between academic departments and boost enrollment among racial and ethnic minorities. He created a $100 million fund to support interdisciplinary research. And he attacked a sacred cow of higher education by folding the athletic department into other departments to better integrate athletics with the rest of the university.

Meanwhile, the university began renovating Braeburn, which was built in 1915. The project, which included new plumbing, heating and electrical systems, expanded the mansion by 3,700 square feet, to a total of 19,700. Construction permits estimated the cost at $2.1 million. But the final tab exceeded $6 million, according to a person close to the situation.

Mr. Hall says he knew the building was in poor repair but the extent of the work was a "surprise." Mr. Gee says, "We indicated some of the things that we thought would be important, including creating a space for all the entertaining we were going to do." However, he says he didn't keep tabs on the project's cost because he didn't want to be perceived as trying to shape the project for his personal gain. "I was told it was done right, it was done well and it was done on budget," he recollects. In hindsight, he agrees he should have learned the amount and kept the full board apprised.

Still, Mr. Gee says, "we paid for that house over and over and over again." He notes that the university has raised more than $1.2 billion since he arrived and says, "A lot of that was raised in that house." Some of the money went to build the endowment, which has grown to about $3 billion from $2 billion in 2000.

Mr. Gee estimates that Braeburn is home to several hundred events a year. The events range from five-guest dinners served by a waiter to large fund raisers for Nashville-area nonprofits where Vanderbilt pays the bill. Improving community ties "is a very good use of university resources," Mr. Gee says. "We don't live here to have parties for ourselves."

In some cases, the connections to Vanderbilt are more tenuous. Three years ago, Mr. Gee and his wife hosted a party to celebrate a memoir written by their friend Marshall Chapman, a rock singer, songwriter and Vanderbilt alumna. Ms. Chapman says 300-plus guests dined at tables covered with tie-dyed cloths while she sold about 65 copies of her book. The party cost Vanderbilt more than $15,000, according to the person familiar with the situation.

Michael J. Schoenfeld, a university spokesman, declines to discuss the party's cost. He says the party strengthened Vanderbilt's ties to the music industry and notes that Ms. Chapman had endowed a women's basketball scholarship.

The renovations, the entertaining and Mr. Gee's pay package stirred little dissent on campus for five years. Mr. Gee was viewed as a campus hero and the university became significantly more selective. Vanderbilt admitted 34 percent of its applicants this year, compared with 55 percent in 2000.

In the fall of 2005, university employees discovered that Constance Gee, a tenured associate professor of public policy and education, kept marijuana at Braeburn and was using it there, according to people familiar with the matter. A few weeks later, several trustees and a senior university official confronted Mr. Gee in his office, telling the chancellor he shared responsibility for allowing marijuana on university property, the person familiar with the situation recalls.

Trembling, the chancellor replied, "I've been worried to death over this," according to this person. Mr. Gee said his wife smoked marijuana to relieve an inner-ear ailment, this person says. The Gees decline to comment on the incident.

Mrs. Ingram, Vanderbilt's board chairman, formally reprimanded Mrs. Gee for possessing and using the illegal drug. The matter was "handled appropriately and satisfactorily," says Mrs. Ingram, who is chairman of Ingram Industries Inc., a conglomerate with interests in book distribution and shipping.

Mrs. Gee has caused stirs on campus with her liberal politics. She lowered the American flag outside Braeburn to half-staff after President Bush won re-election in 2004. Mr. Gee says he quickly ordered the flag raised back up. She and others signed a letter of protest to the chancellor when Condoleezza Rice, then Mr. Bush's national security adviser, was invited to address graduating students in 2004. Mr. Schoenfeld says Mrs. Gee posted the letter on the couple's refrigerator door at Braeburn.

The marijuana incident troubled some trustees, who were bothered that Mr. Gee never told the full board about it, according to people familiar with the matter. To these trustees, the incident demonstrated that Mr. Gee needed to be more accountable to the board.

Aware of the trustees' concerns, Vanderbilt General Counsel David Williams reviewed Mr. Gee's spending, looking for personal expenses. Mr. Williams questioned the absence of clear records documenting time the chef spent preparing meals for the Gees rather than for university events. Mr. Gee later agreed to cover about one-third of the chef's roughly $50,000 salary -- more than before. "When they (university officials) tell me what needs to be done, I always write the check," Mr. Gee says. "But sometimes, I get heartburn" from the requests.

Restive trustees then asked Mrs. Ingram for a broader look at Vanderbilt's governance system, pointing to the federal Sarbanes-Oxley law on governance of publicly traded companies and the scandal at American University, according to Mrs. Ingram. She formed a committee to determine if the university was following "best practices," she says. The committee, led by retired investment banker Joe Roby, found the full board never approved the budget and other financial items between 2000 and 2005.

The committee report, which was reviewed by The Wall Street Journal, recommended that trustees take a more active role in university affairs, including strategic planning, capital spending and management compensation. It also suggested a special panel to monitor Mr. Gee's budget and outlays for entertainment, travel, food, staff and upkeep of Braeburn. The panel would report annually to the full board.

The recommendations sparked a spirited board debate. Mrs. Ingram says she initially opposed an April board vote to adopt the report and create the expense panel. Later she retreated, and the board unanimously endorsed the tougher oversight measures.

"We have a chancellor who is performing well," says a trustee. The new checks, this trustee says, are aimed at making Mr. Gee "more effective."

Other trustees worry that the board could become a micromanager. "You don't want to cut off your nose to spite your face," says Mr. Hall, who won a spot on the new expense panel after lobbying on his behalf by Ms. Ingram and Mr. Gee.

The trustees' effort to improve oversight has also renewed questions about one of their own -- Monroe J. Carell Jr., a key Gee supporter on the executive committee and head of the university's $1.75 billion capital campaign. He and his family have given Vanderbilt more than $40 million.

Mr. Carell is founder and executive chairman of Central Parking Corp., the world's largest operator of parking facilities. He and his family own about 48 percent of the shares, according to Jeffrey Heavrin, chief financial officer. Central Parking manages Vanderbilt's parking lots and related services under a 1974 contract. It currently earns between $100,000 and $120,000 annually in management fees there, according to Mark Manner, a lawyer for Mr. Carell.

Vanderbilt never put those parking services out to competitive bid, says Mr. Schoenfeld, the university spokesman. That created a fuss in 2002, when Steve Franks, a former associate athletic director, questioned Central Parking's rates for handling parking at football games.

After the athletic department switched to a different provider, Mr. Carell complained to athletic director Todd Turner, Mr. Franks says. "We were instructed to back our way out of the contract we had signed and return to Central Parking," he says.

Mr. Manner confirms Mr. Carell called Mr. Turner to discuss the contract. But the trustee "applied no pressure to him," Mr. Manner says. Mr. Schoenfeld says the athletic department retained Central Parking's contract, which had more than a year to run, because it had not followed proper termination procedures.

A consultant later hired by the university to review the Central Parking relationship concluded the parking-management fees were within market rates but advised Vanderbilt to seek proposals from competitors. Mr. Carell didn't participate in the board discussions and declines to comment, Mr. Schoenfeld says.

Vanderbilt requested bids for parking services in July. Central Parking was a bidder. Vanderbilt will announce the winner soon.

Early this year, board members began talks with Mr. Gee about a new employment agreement. The chancellor says he sought to update his offer letter "in light of the changing nature of corporate governance."

One issue on the table was Mr. Gee's seats on five corporate boards. Fewer than 2 percent of U.S. corporate directors hold more than four seats, according to proxy-advisory firm Institutional Shareholder Services. As trustees considered inserting a limit into the new agreement, Mr. Gee recalls, "I said I would move back to three boards" over the next year.

The agreement, signed in August, restricts Mr. Gee to three public-company directorships. It also says the chancellor must get prior approval for budgets in five categories including house maintenance and entertainment, according to a person familiar with the matter.

Mr. Gee isn't entirely happy with the new limits. He says he missed few of his 77 board and committee meetings last year at Dollar General Corp., Massey Energy Co., Gaylord Entertainment Co., Limited Brands Inc. and Hasbro Inc. When he travels to these meetings, he says he also conducts Vanderbilt business, such as conferring with alumni, parents, prospective students and faculty. "Sitting on a corporate board is a hobby for me," he remarks, pointing out that he doesn't smoke, drink or play golf. Mr. Gee made nearly $400,000 in cash and stock awards from his directorships last year.

Mr. Gee says the governance changes at Vanderbilt will continue. "You've covering us in the middle of a movie," he says. The chancellor favors more accountability -- within limits. "We have to make certain that we get it right first," he explains, "so you don't get the pendulum swinging too far ... in terms of micromanaging."